What would Dr Who say?: Time travel and the macroeconomic impact of COVID-19
Updated: Sep 5, 2020
“… governments need to be convinced that investing in public health systems is absolutely necessary despite the multitude of competing demands for scarce budget resources. The current under-preparedness of many countries indicates that this case has not been convincingly made.”
- World Bank. 2017. From Panic and Neglect to Investing in Health Security: Financing Preparedness at a National Level, p. 6.
Imagine a world political leader, a president or prime minister, a few years ago sitting down to finalise their government’s annual budget and a time traveller from the future suddenly appears in their office.
Imagine the TARDIS suddenly materialising in the corner of the room and out jumps Dr Who – that wily all-seeing, all-knowing time traveller – with warnings of an impending future global economic catastrophe.
“Quick! I've come from the future! There will shortly be a great global pandemic of a strange new disease!” the Doctor exclaims.
“It will kill a million people, destroy 5% of the world economy, exterminate global trade, leave millions of people unemployed and cost governments trillions of dollars for decades to come!!
“But if you prepare now and invest more in health systems, you will save trillions of dollars and avoid untold economic damage in the future!!”
The question is, would anyone listen?
We actually know the answer to this question already, and the answer is …. probably not.
We know this because governments haven’t listened to such predictions in the past.
In 2017, the International Working Group on Financing Preparedness of the World Bank – perhaps marginally more knowledgeable about the macroeconomic impacts of global pandemics than Dr Who – recommended that governments invest more in their health systems to prevent major economic shocks of pandemics, noting that their economic costs were on a par with war, climate change and natural disasters.
And just last year in 2019 a group of former political leaders and global health experts reporting for the World Health Organization predicted a global pandemic wiping out 5% of the world economy and urged immediate action to invest and prepare for such an event.
But none of these warnings to ensure our health systems were well-resourced and well-structured were heeded by the time COVID-19 hit.
It just wasn't a priority.
Macroeconomic impact of COVID-19
If anyone doubted the economic importance of a good, well-resourced health system, just have a look at the way the COVID-19 outbreak has smashed economies around the world over the last six months.
Globally, the international economy is a mess.
The World Bank has forecast that the global economy will, indeed, crash by -5.2% in 2020 as a direct result of COVID-19, with advanced economies shrinking by -7% while emerging markets and developing economies shrinking by -2.5%. The COVID-19 economic recession will leave more countries with lower per capita income this year than at any time since 1870.
The International Monetary Fund also expects the world economy to contract by -5% in 2020, costing the global economy US$ 12 trillion and making it the biggest hit to global economic growth since the Great Depression.
Meanwhile, the OECD has forecast the global economy to fall between -6% and -7.6% this year, depending on whether there is a ‘second wave’ of COVID-19 cases and lockdowns.
It all makes for pretty bleak reading.
How individual countries have been affected has in part depended on how well and how early they managed the COVID-19 outbreak.
The first two quarters - or six months - of this year now tell the story of how individual countries have gone.
As an early sufferer of the COVID-19 outbreak, China saw its entire economy contract by -10% in the March quarter of this year, before bouncing back to 11.5% growth in the June quarter in a reminder that early, strong action to limit health impacts can limit the economic damage.
Meanwhile Australia, which early on was a member of the so-called ‘First Movers Club’ for its relatively early response to the outbreak, saw its economy contract by -7% in the June quarter – its largest quarterly economic decline on record – and entered its first recession in almost three decades.
Countries like the UK, Spain and Mexico saw huge crashes in their national economies in the June quarter of between -17 to -20% of GDP.
But one of the biggest economic contractions in that three month period to June 2020 was in India where its economy contracted by -29%.
How these countries fared over the period is a function of how well their health systems coped with the COVID-19 outbreak, how well countries implemented social restrictions and lockdowns, and how well governments provided financial support to their economies.
The OECD predicts that if there is only one wave of COVID-19 cases, the hardest hit countries in the world over the course of 2020 will be the United Kingdom (-11.5% contraction in GDP this year), France (-11.4% ), Italy (-11.3%) and Spain (-11.1%). If there is a second wave, these four countries will remain in the top four globally with an economic contraction of around -14% this year.
And we know that the COVID-19 death rate does have some relation to economic growth performance – a reflection that how well a country can cope with the health crisis has a material impact on its economic performance.
(Source: Global Change Data Lab, "Which countries have protected both health and the economy in the pandemic?", Our World in Data, Oxford Martin School, University of Oxford, https://ourworldindata.org/covid-health-economy, accessed 3/9/2020.)
All of this from a microscopic virus that can be destroyed by hand washing with soap and water.
Already under threat from protectionist trade wars and populist anti-globalisation forces, one of the early casualties of the COVID-19 outbreak was international trade.
The World Trade Organization predicts that in 2020 global trade will fall by up to one-third, a slump bigger than that triggered by the 2008 Global Financial Crisis.
As countries shut their borders, imposed immigration restrictions, international air travel collapsed and supply chains ground to a halt, the world stopped trading with itself.
The WTO expects some recovery in global trade in 2021, but this is highly uncertain and depends on how long the COVID-19 health crisis lasts.
All the talk of travel bubbles, trade blocs and de-coupling from global trade doesn’t bode well for the long-term strength of one of the main drivers of global growth and development in the post-war era.
Unemployment will last long after the virus itself has been managed or defeated.
As often happens in recessions, when employment collapses jobs are quickly lost but take a long time to come back. This is because jobs, firms and industries disappear quickly but take a long time to regrow.
The OECD predicts unemployment in its 36 member countries will increase by up to 10% this year, depending on the extent of a ‘second wave’ or not, with little recovery in employment in 2021.
If there’s a ‘second wave’, the OECD expects its member countries with the highest unemployment rates at the end of this year will be Spain at 25.5%, the United States with 16.9% and the United Kingdom at 14.9%.
And that’s the countries that have fully captured the impacts.
There will be many, particularly lower- and middle-income, countries with large informal employment sectors that will have been particularly badly hit by this pandemic-induced recession.
For example, in India the estimate is that 65 million ‘daily wage workers’ in the have lost their jobs. The street sellers, cleaners and construction workers in major cities all over the country have lost their livelihoods with little or no social security support. This has triggered a mass exodus of such workers back to their traditional hometowns and villages with scenes of mass migration by foot across the country.
The long-term social, economic and political impact of this global unemployment problem is only just starting to emerge, but we know that previous global pandemics triggered major social changes.
In the 14th century the Black Death swept across Asia, the Middle East and Europe. It killed half of Europe’s population which, in turn, triggered the collapse of feudalism and the rise of wage-paid workers in Europe along with major social upheaval.
Cost of government COVID-19 rescue packages
The cost of fiscal stimulus packages brought in by national governments as a result of the COVID-19 outbreak has been extraordinary. Japan has one of the largest, with its government spending more than 21% of its total national economy on stimulus measures.
Value of 2020 COVID-19 fiscal stimulus as share of GDP (%)
(Source: Statista, “Value of COVID-19 fiscal stimulus packages in G20 countries as of July 2020, as a share of GDP”, https://www.statista.com/statistics/1107572/covid-19-value-g20-stimulus-packages-share-gdp/, accessed 3/9/2020.)
Macroeconomic value of health spending
This collapse in global economic activity, jobs, trade and geopolitical stability was triggered by a microscopic virus that can be defeated by soap and water, masks and keeping 1 – 2 metres away from each other.
It has wrought more economic hardship across the world than the Global Financial Crisis a decade earlier and is the biggest global economic event since the Great Depression of the 1930s, perhaps even bigger.
The debate about the economics of the pandemic response by societies will be debated for a long time to come, but the effects are real today.
But, here's the key point ....
While there have been attempts over the years to model hypothetical scenarios, nothing has demonstrated the importance of investing in health care as starkly as the economic collapse the world is currently going through as a result of COVID-19.
The lesson from this crisis is to absolutely demonstrate the economic value of investing in well-resourced, well-run, resilient health systems.
There have been warnings over many years about the potential economic costs of pandemics. Not from Time Lords travelling around the galaxy, but from expert international institutions, commissions of inquiry and learned academics here on Earth.
It’s just that they have all been ignored.
The long term effects
We don’t yet know for sure the long-term structural effects of the COVID-19 pandemic.
But what we can already say is that the health, social and economic costs of this global pandemic have been enormous.
As we enter the recovery and reflection phase of this pandemic, we should consider what that means when we debate the economics of future spending to protect human life in the future.
And we should also reflect on how much we value the future as much as we value the present.
It's what the good Doctor would want.